Hedging Effectiveness in Energy Market during Economic Crisis: Better Way to Integration

Journal of Economic Integration, Vol. 26(3), pp.463-476, 2011

Posted: 21 Jan 2010 Last revised: 7 Nov 2014

See all articles by Aristeidis Samitas

Aristeidis Samitas

University of the Aegean

Ioannis Tsakalos

University of the Aegean

Nikolaos Eriotis

National and Kapodistrian University of Athens

Date Written: January 21, 2010

Abstract

This paper investigates the usage of hedging and risk management in energy market. Energy firms adopt risk management tools in order to secure their positions. New economic environment leads them to take decisions based on secured positions. Financial crisis 2008 caused many problems in world markets and energy sector couldn’t be an exception. Due to the fact that energy sector is not mature yet, as there are too many companies which are involved in this market, key players expand their presence either by acquiring small companies or by entering in new areas. Evolution in energy market’s development and the difficulties in following the new challenges are crucial for firms’ economic stability. So, they have to protect their positions against risk exposure by using financial derivatives. Taking into consideration that crisis impact is pictured on firms’ value; we check whether energy firms have better output when they use hedging tools. In order to measure this impact in energy industry, we adopt Tobin’s Q. The investigation whether energy firms can decrease their risk exposure and increase their value by using financial derivatives is very interesting. The sample of this study consist energy firms on a worldwide basis. The implication of this paper is that energy firms may avoid huge economic problems when they adopt risk management methods.

Keywords: Energy, Tobin’s Q, Hedging Effectiveness, Financial Crisis

JEL Classification: G14, G15

Suggested Citation

Samitas, Aristeidis and Tsakalos, Ioannis and Eriotis, Nikolaos, Hedging Effectiveness in Energy Market during Economic Crisis: Better Way to Integration (January 21, 2010). Journal of Economic Integration, Vol. 26(3), pp.463-476, 2011, Available at SSRN: https://ssrn.com/abstract=1540078 or http://dx.doi.org/10.2139/ssrn.1540078

Aristeidis Samitas (Contact Author)

University of the Aegean ( email )

8 Michalon str.
Chios
Greece

Ioannis Tsakalos

University of the Aegean ( email )

Michalon 8
Chios, 82100
Greece

Nikolaos Eriotis

National and Kapodistrian University of Athens ( email )

5 Stadiou Strt
Athens, 12131
Greece

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